28th April 2020 - AUD outperforms as markets look past short term pain

Good morning

OVERNIGHT DATA AND HEADLINES

Global stock markets rose as investors cheered news that more countries and U.S. states were looking to ease lockdowns and the Bank of Japan expanded its stimulus program, while the price of oil continued to crumble as storage runs out.

Ratings agency S&P Global affirmed Italy's credit rating at 'BBB/A-2', saying that the country's diversified and wealthy economy and net external creditor position partly offset a drag from high public leverage on the sovereign's creditworthiness. The agency maintained Italy's outlook at "negative", adding that it could lower ratings if government debt to GDP fails to shift onto a clearly discernible downward path over the next three years, or if there is a marked deterioration in borrowing conditions that jeopardises the sovereign's public finance sustainability.

The Bank of Japan expanded monetary stimulus yesterday and pledged to buy an unlimited amount of bonds to keep borrowing costs low, as the government tries to spend its way out of the growing economic pain from the coronavirus pandemic. The BOJ also sharply cut its economic forecast and projected inflation would fall well short of its 2% target for three more years, suggesting its near-term focus will be to battle the crisis. To ease corporate funding strains, the BOJ said, it will boost three-fold the maximum amount of corporate bonds and commercial paper it buys to 20 trillion yen ($186 billion). The central bank also clarified its commitment to buy unlimited amounts of government bonds by scrapping a loose guidance to buy them at an annual pace of 80 trillion yen.

U.S. stock markets jumped more than 1% as investors geared up for one of the busiest weeks of quarterly earnings reports, including from tech titans Apple and Microsoft. Dow Jones was up 280.36 points, or 1.18%, at 24,055, the S&P 500 was up 40.36 points, or 1.42%, at 2,877 and the Nasdaq was up 102.21 points, or 1.18%, at 8,736.

The United States said on Monday it will impose new restrictions on exports to China to keep semiconductor production equipment and other technology away from Beijing's military. The new rules will require licenses for U.S. companies to sell certain items to companies in China that support the military, even if the products are for civilian use. They also do away with a civilian exception that allows certain U.S. technology to be exported without a license. They come as relations between the United States and China have deteriorated amid the new coronavirus outbreak. The rules could hurt the semiconductor industry and sales of civil aviation parts and components to China.

Georgia on Monday allowed residents to dine at restaurants for the first time in a month, as more U.S. states began easing restrictions where the coronavirus outbreak has taken a relatively light toll. Keen to revive their battered economies despite the warnings of health experts, a handful of states from Montana to Mississippi were also set to reopen some businesses deemed to be nonessential. Alaska, Oklahoma and South Carolina, along with Georgia, previously took such steps, after weeks of mandatory lockdowns that threw millions of Americans out of work.

CURRENCIES

USD fell across the board as risk appetite was boosted, reducing demand for safe-haven flows. The DXY index fell 0.34% against a basket of currencies to 99.90 with a small recovery back to 100.20.

EUR was last up 0.07% at 1.0828 after earlier rising to 1.0861 highs.

GBP was up 0.50% from 1.2366 to a 1.2455 high

USDJPY gained after the Bank of Japan expanded its stimulus - USDJPY fell 0.23% to 107.25 yen, after dropping to 107.00 (lowest since April 15).

AUD rose 1.21%, reaching a 0.6471 high overnight (the highest since March 12).

NZD was up 0.48%, reaching fresh high at 0.6076 but fell back towards 0.6047.

AUDNZD traded up through 1.0620 to reach a 1.0684 high late into the NY session.

AUDEUR gained just over 70 points from around a 0.5900 open up towards session high of 0.5971.

TREASURIES

U.S. Treasury yields rose as auctions of 2 and 5 year notes were strong despite a tsunami of coming supply to finance the stimulus measures aimed at combating the economic fallout of the coronavirus outbreak.

The benchmark 10-year yield was up 5.8 basis points at 0.6542%.

The 5-year note yield was last up 3.7 basis points at 0.4005% whilst the 2-year yield retreated from earlier session highs and was last up less than a basis point at 0.2243%.

Italy's benchmark 10-year bond yield was 12 basis points lower at 1.77% on the first day of trading after the decision, while the spread over German 10-year bond yields dropped to its tightest level in more than a week, at 216 bps.

COMMODITIES

Gold fell as treasuries rose and plans by many countries to ease coronavirus-induced lockdowns whetted investor appetite for riskier assets. Spot gold fell 1% to $1,710.71 per ounce, dropping as much as 1.3% to $1,704.45.

Chinese iron ore and steel futures fell after industrial firms' profits contracted again in March. Profits earned by China's industrial firms fell 34.9% in March from a year earlier. The most active iron ore futures on the Dalian Commodity Exchange for September delivery fell as much as 1.1% to 601 yuan ($84.92) per tonne before closing 0.8% lower at 602 yuan. Spot prices of iron ore with 62% content were unchanged at $84.50 per tonne.

Copper bounced to its highest in about six weeks - Benchmark LME three-month copper rose as much as 2.5% to $5,269 a tonne, its highest since March 17, before paring gains to $5,199 (+1.2%).

Brent crude fell below $20 a barrel and U.S. crude plunged 25%, driven lower by skittish investors fleeing the U.S. benchmark due to lack of available storage to deal with a coronavirus-induced collapse in demand. Fuel demand is down 30% globally, and storage is becoming precious, with roughly 85% of worldwide onshore storage full as of last week. U.S. WTI crude futures fell $4.16, or 24.6%, to settle at $12.78 a barrel. Brent crude slid $1.45, or 6.8%, to settle at $19.99 a barrel.

US - April consumer confidence index (last 120.0, forecast 90.0). Lockdown and social distancing to suppress the consumer.

US - April Richmond Fed index (last 2, forecast -35). Set to collapse in April, in line with other regional surveys.

AUD THOUGHTS AND TECHNICAL ANALYSIS

AUD capitalised on yesterdays gains, rising towards a 0.6472 high overnight as risk remained upbeat with ample support coming through equities, commodities (metal complex copper & iron-ore), weaker USD and strong AUDJPY bids. Price action stalled as USD buyers emerged late into the session however AUD has managed to maintain most of the gains, closing NY around 0.6460.

No Australian Economic data releases today - attention turning to the U.S. tonight for readings into consumer confidence and the Richmond Fed index.For the AUD, opens this morning at 0.6457 as technicals remain bullish as both the 10 & 55-DMAs lend support.Daily and monthly RSIs rise - a close above the Fibonacci will likely drive tests of 0.6490/95, 0.6535/40.

AUDJPY (considered a sound risk barometer) continues to probe April's highs at 69.38. A 69.33+ close would eye Aug's low and 61.8% of Dec-Mar drop at 69.97/7.18.